It is easy to end up not entitled to a full state pension if you have chopped and changed jobs or had periods in/out of self-employment. Such changes can result in missing or incomplete NIC years. You can routinely ‘buy’ missing years with lump sums going back 6 years. Since the introduction of the New State Pension in 2016 there has been a special scheme allowing the buying of missing years going back to 2006 - this scheme stops in April 2025.
People need 35 qualifying years of NICs to receive a full
state pension (£230.25 per week, or £11,975.60 per year from Apr 25). If you have not got 35 years of contributions
at the state retirement age then you lose £328/yr. per missing/incomplete NIC year.
You can buy missing years before retirement age by paying HMRC a lump sum (about £907.40 for each year). You might (see link) by able to buy after retirement in special cases.
There are fewer better retirement investments than to buy up
missing NIC years if you are at risk of reaching state retirement age with less
than 35 eligible years. The exceptions are if you are in very poor health and unlikely to live 3 years after retirement
or likely to be eligible for Pension Credit due to lack of any other pensions or income
and no significant savings/investments (see link). The
breakeven point is ~2.75 years after state pension age, thereafter the extra
pension bought with the lump sum is profit (I have ignored tax). On average retirees live into the mid/late 80s so filling up missing NIC years can offer an excellent return on investment (on average) depending on your circumstances.
If uncertain about your future state pension entitlement the
key steps are:
- Get a pension prediction from the Pension Service (see link below).
- Identify whether, by state retirement age, you will have 35 years of contributions.
- Prioritize buying incomplete years (best value for money) and earlier years that will become unavailable after April 2025 (as necessary)
WARNING. Not every missing or incomplete NIC year may be an eligible year for improving your state pension entitlement so it is best to speak to Pension Service helpline (see Money Saving Expert website link for number). The author of this post received critically important advice about which missing/incomplete years to buy (HMRC are happy to allow you to buy any missing year whether or not it improves your state pension.
The above is just skim over the issue to explain why it is important and why some individuals will need to act before Apr 25 to avoid missing an important opportunity. The Money Saving Expert item at the link is much more detailed and is recommended reading (it has all of the relevant links and telephone help line numbers).
Money Saving Expert (Updated 22 Oct 24) "Aged 40 to 73? Urgently consider buying National Insurance years" - click Here